Its products find application in
the mining, rock drilling, oil exploration,automobile and general engineering
industries.. Its extrusion rods,
coupling sleeves, adaptors and cross bits are mainly used in underground tunnelling
work. For the ball bearing and fastener industry, it manufactures cold heading dies.

Based
at Ankleshwar in Gujarat and spread over an area of approximately 19,000 square
metres ( 4.7 acres)

Sales
& Marketing :

A
network of 5 sales offices in India-Mumbai, New Delhi, Chennai, Kolkata, Pune

5
dealers.

A
large % of sales are through the tendering process.

A
bit about Tunsten Carbide:

Tungsten
carbide is known for its hardness and high melting point. On the Mohs scale for
testing hardness, tungsten carbide receives a rating of nine, surpassed only by
diamonds, which have a hardness of 10. This hardness makes tungsten carbide highly
scratch-resistant.. The melting point of tungsten carbide is around 2,600
degrees Celsius. By itself, tungsten carbide is not a naturally occurring
material, it is only produced by combining the elements of tungsten and carbon.Cutting
tools for drilling, mining and construction often incorporate the use of
tungsten carbide.Filaments from light bulbs are made out of tungsten because of
its resistance to heat.

Key
points:

1) Rapicut’s
productsare primarily used in the
mining sector which contributes 3/4thof the total revenues with the largest customer being Neyveli Lignite Ltd.
which accounts for around 15% of the turnover. The remaining 1/4th sales
come from the Industrial Sector. The fortunes of this company are tied up
to the domestic mining sector & the greater the mineral production in the
country, the higher will be its revenues. PSU’s contribute nearly 35% - 40% of sales
.

3)The
company manufactures consumables for Coal, Granite and Oil & Gas sectors.
These consumables have a short life span & after certain hours of usage,
they need to be replaced.

4)Import
duty on products manufactured by Rapicut is 12.5%.

5)Till
last year, 80% of RM was imported . Tungsten is a rare earth mineral & is
not found in India. It is imported from China which is the largest global
producer of Tungsten. With the depreciation of the rupee company has modified
its sourcing and now imports around 50% of RM.The rest is procured through
domestic tungsten scrap processors.

Financial snapshot:

2008-09

2009-10

2010-11

2011-12

Revenue rs.cr

19.11

20.73

25.02

30.11

Depreciation rs.cr

0.23

0.25

0.27

0.37

Interest rs.cr

0.52

0.27

0.30

0.44

PBT rs.cr

1.36

2.56

3.84

4.48

Tax rs.cr

0.38

0.69

1.26

1.44

PAT rs.cr

0.98

1.87

2.58

3.04

EPS (Rs.)

3.67

8.70

12.01

14

Payout ratio %

32

21

21

21

Dividend per share (Rs.)

1.20

1.80

2.50

3

Equity (rs.cr)

2.15

2.15

2.15

2.15

Current Market price: Rs.53

Market cap:Rs.11.4 cr

Debt : Rs.2.25 cr

EV : Rs.13.65 cr

Some other tit bits:

Pramod Chaudhari, CMD of Praj
Industries Ltd in his autobiography ‘As is what is’ talks about how he left
Widia to join Rapicut sometime in 1981. At that time, the company had just
commenced production and was perennially short of cash. He talks about how he
had to leave the company due to a plan hatched by one Chigteri (one of the
original promoters of Rapicut) due to
his insecurities .He goes on to add how later Chigteri was hospitalized and treated
for mental instability. His references to Jagdish Bhatia, the current MD ( who
was the Finance head then in the 80’s) are all positive and talk about the
struggle faced then and the efforts made by Bhatia to get the company off
ground.

Valuation:

At the current market price of
Rs.53, Rapicut is available at a dividend yield of about 5.66 %.The company
operates in a niche space and the nature of its products ( consumables) to a
certain extent cushions it from the vagaries of the capex cycle. Rapicut is also expanding
capacity in a phased manner . Installed capacity is likely to be doubled to
about 1,80,000 kgs within 24-30 months. The 5 year (FY12-17) Capex Plan is
about 5.5Cr. (out of which 75% is a term
loan from SBI @ 12.5% floating). Total Debt is unlikely to go beyond 5 cr.

If the company is able to
maintain its steady growth performance of the last 5 years over the next 2-3
years, the stock has the potential to give good returns.

At
the time of writing this report, the author /his family have an
investment interest in the stock mentioned above. Under no circumstance
does the information in this report represent a recommendation to buy or
sell the above-mentioned stock. This report has been prepared and
issued on the basis of publicly available information, internally
developed data & other sources believed to be reliable. This is just
a suggestion solely for information purposes and does not constitute a
solicitation to any person to buy or sell a security. While the
information contained therein has been obtained from sources believed to
be reliable, no responsibility (or liability) is accepted for the
accuracy of its contents. Readers using the information contained herein
are solely responsible for their actions and are advised to satisfy
themselves before making any investments.

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